FLORIDA REAL ESTATE INVESTMENT RETURNS INVESTORS REALTORS INVESTMENT HOME BUYING BUYER SELLING

BUILDERS PROCEDURES FOR PURCHASE

Many builders require a deposit in the pre-construction phase which is usually defined 2 ways:

Reservation: A pre-contract ritual usually requiring $1,000, $5,000 or $10,000 down to secure a homesite or unit in a particular building or street. Within a designated time (depending on the builder, 3 days to 3 months) the balance of 10% is due. The balance of the price of the home is due upon completion of the unit whether you pay cash or use a mortgage..
Contract: Many builders skip the reservation and go right to 10% deposit needed to complete the 1st stage of the contract. Whether it is reservation or contract, the builder usually requires you to make mortgage application within 3-5 days of the 10%. The commitment may take a bit longer but the initial process must begin quickly so the builder does not take the property off the market for someone who may not qualify for a mortgage.

As South Florida properties, especially in the $200,000-$300,000 range are in so much demand, waiting lines are the norm and are dealt with in different ways.

Lottery. Many builders don't like the word lottery since it infers that you must purchase a ticket to be eligable, or in builders lotteries, paying a $1,000 reservation to get in before your name is even drawn. They prefer the word "drawing". The builder usually announces in advance when the lottery is going to occur. Their salesperson will issue a site map and lot prices so when your name is randomly called, you know ahead which lots you desire of the remaining lots available. When your name is called and you select a lot then you put down a deposit to hold it and lock the price in until you give them the balance of 10%. If you don't like the selections remaining, you may leave and take your money with you. You may then try your luck on the next lottery when the builder opens more lots or units but most likely the price will have gone up.
First come first serve. These are builders that have such a demand for their homes they may not have to advertise their opeings for the first group of units they have to offer. They may have an advanced list through email, rely on Realtors with their clients, by word of mouth or all three. A builder I purchased 2 homes from is in such demand for their homes they did not tell us the price of the homes until well after the reservation stage. They will tell you the estimated price but will not guarantee it at that time.

You would take your place in line and when your number is called, you can select the building or lot number from the site map and put your deposit down. You can either select a home based on the view of the preserve, a lake or according to the estimated schedule of building completion. The earlier in the completion process, the less the price should be. Hence the track selling concept. As each building in order goes to contract, the price increases per building or street.

Example: The builder has 250 villas to sell with either 6 or 8 per building. Say there are 40 buildings in the development or that phase and you reserved a unit in building #6. Once all of the deposits have been processed, the salesperson will call the people who reserved units in building #1 and inform them of the price for their particular floorplan, say $200,000. If you are satisfied with the price, you then give them the balance of 10% of the sale price and have now gone to "contract".
If you decide to decline because the price is higher than you thought, you reject the unit and the builder refunds your money. The salesperson will most likely have back-ups for some of the units comprised of those people who were not able to reserve a lot due to the units all being spoken for already. The back- up may or may not get a chance to purchase.

The salesperson then calls the people who reserved units in building #2 from the original opening and tells them the price of their unit. The price for the same floor plans in building #2 should be higher, estimated anywhere from $1,000-to-$10,000 which is usually based on the number of total units in the development or if the view is better. The more units there are, the chances of a lower increase per building but with more increases overall.

Remember, the reservation stage is a RIGHT OF REFUSAL. You are under NO obligation until you go to contract and put the balance of the 10% down. If it is a condo, then you have a 2 week right of refusal after the 10%. By getting in a project in the later stages you will be paying more for your home but for investment it may not be the worst case if there are a lot more units to sell after yours, with many more price increases to come. It is always beneficial to get in at the beginning but with the demand for properties by investors, 2nd home buyers and new Florida homeowners, it many times requires luck to get in at the beginning of a new development.

The best return in the$400,000 and under market comes from a builder who will continue to raise prices as they sell homes. For thoese who can't be at the lotteries or reservation stages of the new developments, I will represent you as your agent and submit your check with the goal of getting the lowest priced unit for you.